Guest Post: Up Against Hard Limits - Food And Finance

We are reaching hard limits in food production and financial engineering.

In the first 25 years after World War II (1946-1970), an abundance of cheap oil and plentiful opportunities (low-hanging fruit) for global development led to rapid urbanization and economic growth in much of the world. As oil became more expensive and the demands for more resources by an expanding middle class rose, limits on available resources became visible. These were explored in the famous Club of Rome report, Limits to Growth (original 1972 paperback); Limits to Growth: The 30-Year Update (2004).

For roughly forty years (since the report was published in 1972), technology has pulled one magic rabbit after another out of the hat, making a mockery of the claims that there were limits on consumption and resource extraction: the green revolution and fossil-fuel fertilizers expanded food production, new supergiant oil fields and improved drilling technologies opened up vast new energy reserves, and improved technologies led to more efficient use of resources.

The success of the past four decades in pushing back looming limits has created a widespread confidence that technology can solve any apparent limits. For example, if the seas have been stripped of fish, then aquaculture will fill the desire for fresh fish. Presto-magico.

But what if the technological improvements are entering a terminal phase of diminishing returns? What if the "solutions" don't really replace what has been destroyed? For example, the ecology of the open ocean is not restored by aquaculture; rather, it is further harmed by poor aquaculture practices.

The analogy is cutting down a rain forest, which is a diverse habitat for a variety of life, and replacing it with a monoculture tree farm. Economically, the tree farm may appear superficially to have the same "value" as the forest, but this reveals the poverty of our economic models that only value what can be commoditized for human consumption in the global marketplace.

Everything that doesn't fit that definition is discounted as worthless--for example, the air in Beijing. Since it can't be monopolized, marketed and sold, it is not valued. the external cost of millions of cases of lung cancer are not included in the "cost of production."

A trusted correspondent recently emailed me this sobering commentary:

"I recently spoke with a longtime friend and former colleague in international aid and development work from "back in the day" with 30 years of experience in the field, and he notes from his work that global food production per capita has peaked (not coincidentally with crude oil extraction per capita), and growth of consumption against supplies could result in acute shortage conditions in the marginal areas as soon as this year or next, with China and parts of Southeast Asia experiencing intractable shortages as soon as 2015-2018. He estimates the risk of "permanent drought and famine" in parts of Africa now at well over 50%."

I see the same complacent confidence in global finance: it is widely assumed that the world's central banks can create money and credit with abandon and manipulate currencies and stock/bond markets, with no limit on their activities and no consequences that escape their control.

It seems "impossible" there could hard financial limits when credit creation is unlimited, and the central banks' ability to manipulate and control global markets also appears unlimited. But it seems to me that there is a financial ecosystem that is an analog of a natural ecosystem, and therefore there are analogous hard limits on financial engineering. That these limits are not yet visible does not mean they don't exist.